AUTO BHARTI Vs. INCOME TAX OFFICER
LAWS(IT)-1994-1-10
INCOME TAX APPELLATE TRIBUNAL
Decided on January 04,1994

Appellant
VERSUS
Respondents

JUDGEMENT

H.C. Shrivastava, Accountant Member - (1.) DURING the assessment proceedings for the assessment year 1986-87 the Assessing Officer examined the bank accounts of the assessee and found that not only for the assessment year 1986-87 but also for the assessment year 1985-86 there was a difference in the actual bank balance of the assessee according to the bank statement and the bank balances disclosed by the assessee in the documents furnished along with the return. For the assessment year 1985-86 the assessee had filed a return showing an income of Rs. 40,540 which was accepted under Section 143(1) of the I.T. Act. On the basis of the materials available on record for 1986-87 the Assessing Officer came to a conclusion that the real income for the assessment year 1985-86 escaped assessment and as such he issued notices under Section 148 read with Section 147. The Assessing Officer impounded the ledger for the assessment year 1986-87 and found that the assessee had shown opening balance of sundry creditors without giving the names and addresses at Rs. 1,04,853. It was found that the assessee had shown a payment of Rs. 75,000 to these creditors on different dates during the assessment year 1986-87. The payments were said to have been made by demand drafts but the names of the creditors were not mentioned. For the year 1985-86 the purchases were shown at Rs. 11,90,764 while the total withdrawals from the Bank were to the tune of Rs. 7.7 lakhs approximately. The Assessing Officer, therefore, asked the assessee to explain the source for the balance of purchases. The assessee then came out with a contention that the payments to the sundry creditors were not made by demand drafts but were made in cash. No details, however, were made available regarding the names and addresses of the creditors, etc. According to the assessee, purchases to the extent of Rs. 2,97,422 were credit purchases and the balance represented cash purchases which were not reflected in the bank account. The Assessing Officer while comparing the records of the assessee with the Sales-tax Department found that the assessee had disclosed purchases of Rs. 9,90,764 for, the year concerned and showed a closing stock of Rs. 1,72,335 to the Sales-tax Department. In income-tax, however, the purchases were shown at Rs. 11,90,764 and the closing stock at Rs. 3,74,335. Thus both the purchases and the closing stock shown to the Income-tax Department were enhanced by Rs. 2 lakhs each. The explanation of the assessee was that the purchase bills in respect of credit purchases amounting to Rs. 2 lakhs were received subsequent to the filing of the sales-tax return and, therefore, the purchase of Rs. 2 lakhs was not reflected there. It was submitted that with a view to rectify the above error the assessee showed additional purchases of Rs. 2 lakhs for the immediately following year in the sales-tax return. The Assessing Officer, however, did not accept this position as he found that the credit as at the beginning of the subsequent year were not more by a similar amount. On being asked to explain, the assessee filed the revised return declaring an additional income of Rs. 2 lakhs on 20th of July, 1988. The Assessing Officer, however, held that the offer of additional income was not voluntary because it was submitted by the assessee after reopening of the assesssment and also because the assessee failed to explain the credit purchases of Rs. 2,97,764. He, therefore, initiated proceedings under Section 271(1)(c) and after giving the assessee an opportunity of being heard imposed a penalty of Rs. 1,18,500 under Section 271(1)(c).
(2.) When the matter was taken to the CIT(Appeals) he found that the details regarding the so-called creditors were not available at all. He also found that the story of the assessee regarding the discrepancy between the Income-tax and Sales-tax Department was not believable. He also did not believe the assessee's contention regarding the discrepancy between the Income-tax and Sales-tax Departments' figures as according to him the assessee had full one year to reconcile this discrepancy. He also held that just because the assessee filed a revised return offering this amount for taxation it cannot be said that the return was voluntary. Relying upon the decision of the Madhya Pradesh High Court in Addl. CIT v. Bhartiya Bhandar [1980] 122 ITR 622, 177 ITR 390 (sic), A.K. Bashu Sahib v. CIT [1977] 108 ITR 736 (Mad.) and H.V. Venugopal Chettiar v. C7T[1985] 153 ITR 376 (Mad.) he upheld the imposition of penalty against the assessee. The assessee is in appeal before us. We have heard the assessee's counsel and the Departmental representative in this regard. It is seen that right from the assessment years 1982-83 to 1987-88 the assessee has been showing the gross profit rate between 9.44 per cent to 15.08 per cent. The net profit also varied between 4.23% to 6.78%. It is conceded that the assessee did not maintain regular books of account and no quantitative details were available. Provisions of Section 145(1) were clearly applicable. In this case the assessee filed original return showing an income of Rs. 40,000 only. Later on when the department started going into the details of the bank account it found that the assessee failed to reconcile the bank account with the balances shown by him in the income-tax and sales-tax returns. Thereafter the material that has been gathered by the Assessing Officer could not be dispelled by the assessee and he had to come forward with an offer of additional income of Rs. 2 lakhs. There is no doubt that the accounts of the assessee were such that the Assessing Officer could not rely upon the same for computing the income of the assessee. The way the accounts were maintained left a lot to be desired. The preponderance of the probabilities in this case, therefore, tilt in favour of the Department and the Department has made out a case for imposition of penalty. It is notable that the penalty proceedings are different from criminal prosecution inasmuch as in criminal prosecution the guilt has to be proved beyond any doubt. As far as the income-tax penalty proceedings are concerned, once the explanation of the assessee is found to be unsatisfactory or not believable then the penalty for concealment can be confirmed on the basis of the preponderance of probabilities. However, what is very relevant here in this case is that the CIT(Appeals) while confirming the penalty invoked the provisions of Explanation to Section 271(1)(c) of the Income-tax Act. The notice issued by the Assessing Officer does not mention anything about initiation of penalty proceedings under any Explanation to Section 271(1)(c). It only mentions the language used in the main Section 271(1)(c). The satisfaction of the Income-tax Officer under Section 271(1)(c) is only with regard to the main Section 271(1)(c). The Assessing Officer was of the opinion that the assessee had concealed the particulars of income or had furnished inaccurate particulars. At no stage he gave any notice to the assessee that he intended to impose on the assessee a penalty for concealment in view of the various Explanations appended to Section 271(1)(c). According to the Bombay High Court decision in the case of CIT v. P.M. Shah [ 1993] 203 ITR 792 the levy of penalty and the confirmation of the same by the CIT (Appeals) under Explanation was not sustainable. The basis for issuing notice for levying penalty was concealment of income or furnishing of inaccurate particulars under Section 271 (1)(c) of the Act. The CIT (Appeals) could not have proceeded to confirm the penalty under Explanation to Section 271(1)(c) in the absence of any initiation of penalty proceedings under Explanation to Section 271(1)(c). According to the Hon'ble High Court a proper reading of Section 271(1)(c) makes it quite clear that the Explanation makes a suitable difference to what was contained in Section 271(1)(c). The Explanation according to the Hon'ble High Court creates legal fiction in certain circumstances to the effect that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of his income in the circumstances set out in Explanation. But for such a legal fiction it could never have been said that there was any concealment or furnishing of inaccurate particulars of income. The Explanation also shifts the burden of proof on the assessee. Therefore, when the Explanation was resorted to by the CIT(Appeals) for confirming the penalty it was essential that the assessee should have been informed that the penalty proceedings against him were being commenced under Explanation to Section 271(1)(c). There is no dispute that as far as this case is concerned the Assessing Officer did not initiate penalty proceedings under Explanation to Section 271(1)(c). At no stage the assessee was given any opportunity of offering explanation by informing him that the proceedings for concealment were initiated under Explanation to Section 271(1)(c). The Hon'ble Bombay High court further confirmed this view by their decision in the case of CIT v. Dharamchand L. Shah. We find that the Hon'ble Bombay High Court in the above decision observed that invariably in such cases the Revenue is not properly applying its mind before initialing and imposing penalty under Section 271(1)(c) of the Act. It is due to reason that even though the Revenue had a good case of imposing penalty under various provisions of the Act the assessee by and large succeed right from the first appellate stage itself. They observed that if the Assessing Officer had invoked the provisions of Explanation to Section 271(1)(c) of the Act perhaps the decision of the Tribunal and thereafter the High Court would have been different than what it was.
(3.) IN CIT v. Drapco Electric Corpn. [1980] 122 ITR 341 (Guj.) it has been held that in the case where proceedings initiated by the I.T.O. without resorting to the Explanation to Section 271(1)(c). Explanation can be relied upon by the I.A.C. for imposition of penalty. The Hon'ble Gujarat High court has observed that since the Explanation enacts merely a rule of evidence it is competent to the authorities which imposes the penalty to invoke its aid in reaching the final conclusion on the question of concealment, although the I.T.O. may not have resorted to it at the stage when he made the reference to authority concerned. Apparently this decision seems to be in conflict with the decision of the Bombay High Court which is jurisdictional High Court in this case in P.M. Shah {supra) and Dharmachand L. Shah's case (supra) However, as far as the assessment year 1986-87 is concerned this problem does not arise as the Assessing Officer has himself initiated proceedings under Explanation 1 to Section 271(1)(c). IN Gujarat High Court decision of CITv. Lakhdhir Lalji [1972] 85 ITR 77 which has been relied upon by the Bombay High Court in P.M. Shah's case (supra) it has been held that if the penalty proceedings had been commenced against the assessee on a particular footing that is to say concealment of particulars of income, but the final conclusion for levying the penalty was based on different footing altogether that is to say on the footing of furnishing of inaccurate particulars of income then it cannot be said that the assessee has been given a reasonable opportunity of being heard before the order imposing the penalty was passed. It seems that this decision of the Gujarat High Court is also in conflict with the decision of the same High Court in 122 ITR 243 (sic). However, again it is emphasised that this case does not help the assessee in 1986-87 as the Assessing Officer has initiated proceedings under Explanation 1 to Section 271 (1)(c). The decision of the Gujarat High Court in KM. Bhatia (Quarry) v. CIT [1992] 193 ITR 379 is also not applicable to the facts of this case as here the assessee did not accept any mistake. As far as the decision of the Andhra Pradesh High Court in G.K. Padmarajuv. CIT[1959] 37 ITR 365 is concerned,we are of the opinion that it neither helps the assessee nor the Department. The facts in that case are entirely different from the facts of this case. Regarding the Madras High Court decision in CTT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602 we are of the opinion that the filing of revised return in this case under Section 139(5) does not help the assessee. IN this case the assessee filed a revised return or offered amount for taxation only after the INcome-tax Officer had made detailed investigations. The decision of the Madhya Pradesh High Court in Sulemanji Ganibhaiv. CIT [1980] 121 ITR 373 also does not help the assessee. It is a matter of fact that helps the Department inasmuch as the assessee failed to offer an explanation as regard to the concealment of Rs. 3 lakhs which could be supported by him by any evidence. Similarly, the decision of the Madhya Pradesh High Court in Nav Nirman Co. v. CIT [1984] 148 ITR 703 though not exactly at par with the assessee's case it nevertheless makes the case of the Department strong with regard to the addition of Rs. 3 lakhs. Regarding the Madras High Court decision in CITv. C.R.Niranjan [1991] 187 ITR 280 we are of the opinion that it supports the assesee's case with regard to the addition of Rs. 4,52,485 for assessment year 1986-87. As far as the Orissa High Court decision in CITv. LaxmiAuto Stores [ 1977] 106 ITR 626 is concerned it seems to be in conflict with the decision of the Hon'ble Bombay High Court in P.M. Shah's case [supra). The Orissa High Court has held that the Explanationto Section 271 (1)(c) has to be taken into consideration before imposing any penalty even in the case where the proceedings were not initiated under the Explanation. However, we are bound by the jurisdictional High Court decision. As far as assessment year 1986-87 is concerned, it will not make much of a difference. The decision of the Madras High Court in Cement Distributors (P.) Ltd. v. CIT [1966] 60 ITR 586 is not applicable to the facts of this case. IN the supreme Court decision in CITv. MussadilalRamBharose [1987] 165 ITR 14 it has been held that where the total income returned by the assessee is less than 80% of the total income as assessed, the Explanationto Section 271(1)(c) of the I.T. Act shifts the burden to the assessee to show that the difference is not owing to fraud or gross or wilful neglect on his part. This onus is rebuttable. IN this decision, the Hon'ble supreme Court have approved the decision of the Punj ab & Haryana High Court (Full Bench) in the case of Vishwakarma INdustries v. CIT [1982] 135 ITR 652. It has been held that where the Explanation to Section 271(1)(c) is applicable the same has to be applied to the facts of that case.;


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